Monday, October 27, 2014

Profit margins and investor expectations...

From the book Capital Account:
Companies that 'gouge' their customers in order to enhance profits tend to create overly optimistic expectations among investors. For instance, when Philip Morris announced that it was slashing cigarette prices in an attempt to stem market share erosion on 'Marlboro Friday' (April 22, 1993), its share price collapsed. This occasion provided a vivid demonstration of how excessive profit margins, being unsustainable, may actually be more dangerous to investors than modest ones.